Europe: It Needs to Get Its Act Together

By George Leong, B.Comm. Published : October 27, 2011

The situation in Europe is akin to a Greek Tragedy. There is bickering, in-fighting, and distaste for each other that makes it extremely difficult to get things resolve. The end result is that stock market is suffering.

Europe is facing a debt crisis. It’s as simple as that. And it needs to be remedied so the stock market can feel a bit more comfortable.

Greece needs over $100 billion just to pay the debt repayments on its initial emergency loan or default under the severe weight of the debt crisis. The stakes are high. Speculation is that Greece will be required to write down the value of its $284.9 billion in bonds by 50%, according to some familiar with the talks. But don’t forget the other half. Who wants these bonds burdened by the debt crisis?

And don’t forget the rest of the PIGS, which include the other poor or struggling countries of Portugal, Ireland, and Spain. The European debt crisis has been brutal. The result has limited the focus on growing Europe from the recession with the stock market in the abyss.

The eurozone economies continue to struggle with anemic growth. Heck, Greece is still in a recession. Take a look at the Greek stock market and, as I’ve said, it’s clearly a Greek Tragedy.

At this juncture, the eurozone is on the brink of another potential recession. Factories in the eurozone have contracted for three straight months. The Flash Markit Eurozone Services Purchasing Managers’ Index (PMI) is contracting at 47.2 in October, down from a 48.8 reading in September, and short of the estimate of 48.5.

The problem is that growth will be hard to come by given the burden of the debt crisis and reduced wealth from a weak stock market. The probability of another recession in the eurozone is 40%, according to a poll conducted by Reuters.

The debt crisis has been hard on the region’s strongest member, Germany. Even manufacturing in Germany is under pressure after contracting in October.

If you base the prospects for Europe on the stock market, the future is filled with uncertainty. The debt crisis has killed the stock market.

I continue to feel that Europe is in deep trouble that could take it years to dig itself out of. Greece is in deep despair and the situation there could easily worsen.

The reality is that growth in both Germany and France has suffered with the focus squarely on saving the PIGS.

My view is that the debt crisis, deficit, and stalling growth issues cannot continue much longer or Europe will falter and fall into a deeper or new recession.

The European Central Bank (ECB) has maintained its benchmark lending rates at 1.50, but also cut its GDP growth forecast for the region.

Morgan Stanley cut its global gross domestic product (GDP) forecast for 2011 and 2012 and added that the eurozone is “dangerously close to a recession.” This is not good for the stock market.

So now we wait for Europe to sort out its mess and this will take a long time. The problem is that the fragile European situation impacts America as well, which is also in its own big mess.